September and Q3 2013 IPO Market Review

September and Q3 2013 IPO Market Review

Blog The Road to IPO: Legal and Regulatory Insights into Going Public

The 2013 IPO market saw the largest number of September IPOs since 2000, ending the month with 20 IPOs—the second highest monthly total since the end of 2010—despite being dormant in the two weeks following Labor Day. The month’s total was triple the September average over the past 10 years.

The IPO market has produced 121 IPOs during the first three quarters of 2013—39 more (48%) than the 82 IPOs completed in the first three quarters of 2012 and nine more than the annual average of 112 IPOs that has prevailed for the past three years. The year-to-date 2013 total is only four IPOs below the average January–September tally recorded between 2004 and 2007—a period with an annual average of 186 IPOs.

With gross proceeds of $3.27 billion in September, the year-to-date IPO proceeds of $25.83 billion trail the $30.60 billion of proceeds in the first three quarters of 2012, a drop largely due to the inclusion of Facebook’s $16.0 billion offering in the 2012 tally.

Emerging growth companies (EGCs) continue to dominate the IPO market, accounting for 82% of all IPOs in the first three quarters of 2013—slightly higher than the 76% market share claimed by EGC IPOs last year, following the enactment of the JOBS Act in April 2012.

There were 53 venture-backed US issuer IPOs (44% of the total) in the first three quarters of 2013, compared to 41 in the first three quarters of 2012 (50% of the total) and 51 for all of 2012 (50% of the year’s total).

The market’s appetite for life sciences companies continued unabated with eight life sciences IPOs in the month. The first nine months of 2013 have now seen 39 IPOs by life sciences companies—blowing by the full-year total of 14 in both 2011 and 2012. While talk of a “biotech IPO bubble” remains and some life sciences companies have priced upsized IPOs above the price range, others have been forced to slash their deal size and price range, indicating the market remains selective and is assessing the value of each IPO on its individual merits.

With private equity–backed IPOs performing well in the aftermarket and private equity firms eager to achieve liquidity for their portfolio companies, the number of PE-backed IPOs jumped to 38 in the first three quarters of 2013 (32% of the total)—10 more than the full-year 2012 total (28% of all 2012 IPOs).

Overall, technology and life sciences companies have accounted for 65% of the year’s IPOs thus far, up from 58% for full-year 2012 and the highest percentage since the end of the dot-com bubble in 2000.

September saw the third, fourth, fifth and sixth best first-day gains of the year and only four IPOs were “broken” (IPOs whose stock closes below the offering price on their opening day). The average IPO company in the first three quarters of 2013 enjoyed a 19% first-day gain from its offering price—eclipsing the 16% average first-day gain for full-year 2012. In the first three quarters of 2013, 37 companies—31% of the total—produced a first-day gain of at least 25%. In this period, 23% of IPOs were “broken”, compared to 20% in all of 2012, but this percentage still represents the second-lowest level of broken IPOs since 2007.

At the end of September, the average 2013 IPO company was trading 44% above its offering price and 36% of the year’s IPOs were trading at least 50% above their offering price—including 13% that were up more than 100% from their offering price. Overall, 77% of the year’s IPOs were trading above their offering price as of September 30.

The median deal size of $101.2 million for the first three quarters of 2013 was 7% higher than the $94.3 million median in full-year 2012. The median deal size for VC-backed companies was $77.5 million—the lowest level since the $72.0 million median in 2006—while the median deal size for non-VC backed companies was $226.1 million, 55% higher than the prior 10-year average of $146.0 million. The median deal size for EGCs, at $81.6 million, was less than a fifth of the $436.3 million median deal size for other companies.

The median annual revenue of IPO companies in 2013 remains well below the 2012 level, in part due to the high percentage of life sciences companies going public. Median annual revenue decreased 39%, from $133.6 million in 2012 to $81.7 million in the first three quarters of 2013, representing the lowest level since the $74.5 million median in 2007. Life sciences IPO companies in the first three quarters of the year had median annual revenue of just $10.6 million. EGCs completing IPOs had median annual revenue of $53.7 million, compared to $2.36 billion for other companies.

The percentage of profitable companies going public declined from 55% in 2012 to 42% in the first three quarters of 2013—the lowest level since the 26% in both 1999 and 2000. With investor focus shifting to growth over profitability, only 26% of this year’s life sciences and technology-related IPO companies were profitable.

September IPO activity consisted of offerings by the following companies listed in the order they came to market:

  • BenefitFocus, a private equity–backed provider of an integrated suite of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers, priced an IPO upsized by almost 10% above the range and saw a first-day gain of 102%.
  • Five Prime Therapeutics, a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics, antibodies or drugs developed from extracellular proteins or protein fragments that block disease processes, including cancer and inflammatory diseases, priced an IPO upsized by 20% within the range and gained 1% on its first day.
  • Volaris Aviation Holding, a low-cost airline based in Mexico, priced at the low end of the range and traded up 17% on the first day.
  • Acceleron Pharma, a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel protein therapeutics for cancer and rare diseases, priced an IPO upsized by 20% at the top of the range and ended its first day of trading up 33%.
  • Bind Therapeutics, a clinical-stage nanomedicine platform company developing targeted and programmable therapeutics, priced in the middle of the range and saw a first-day gain of less than 1%.
  • ClubCorp Holdings, a membership-based leisure business and a leading owner-operator of private golf, country, business, sports and alumni clubs in North America, priced below the range and increased 4% in first-day trading.
  • FireEye, a provider of a virtual machine-based security platform that provides real-time protection to enterprises and governments worldwide against cyber-attacks, priced an upsized IPO above an already upwardly revised price range and enjoyed a first-day gain of 80%.
  • Rocket Fuel, a provider of an artificial intelligence and big data–driven predictive modeling and automated decision-making platform, priced at the high end of an upwardly revised range and jumped 93% in first-day trading.
  • Evoke Pharma, a specialty pharmaceutical company focused primarily on the development of drugs to treat gastrointestinal disorders and diseases, priced at the low end of the range and traded down 2% on its first day.
  • Foundation Medicine, a provider of a molecular information platform for analyzing tumor tissue samples across all types of cancer, priced an IPO upsized by 18% above the range and soared 96% in first-day trading.
  • Ophthotech, a biopharmaceutical company specializing in the development of novel therapeutics to treat diseases of the eye, priced an IPO upsized by 33% above an upwardly revised price range and ended its first day up 20%.
  • Applied Optoelectronics, a vertically integrated provider of fiber-optic networking products for cable television, fiber-to-the-home and internet data centers, priced below the range and saw a first-day loss of less than 1%.
  • Covisint Corporation, a provider of a cloud engagement platform for enabling organizations to securely connect, engage and collaborate with large, distributed communities of customers, business partners and suppliers, priced within the range and traded up 23% on the first day.
  • Montage Technology Group, a global fabless provider of analog and mixed-signal semiconductor solutions currently addressing the home entertainment and cloud computing markets, priced below the range and saw a first-day gain of 28%.
  • Premier, a national healthcare alliance, priced above the range and gained 14% on its first day.
  • Enzymotec, a biotechnology company that develops and produces biofunctional ingredients to address health needs associated with the human life cycle, priced below the range and ended its first day up 30%.
  • Pattern Energy Group, an independent power company focused on owning and operating power projects, priced above the range and saw a first-day gain of 6%.
  • RingCentral, a provider of software-as-a-service solutions for business communications, priced at the top end of the range and ended its first day up 40%.
  • Violin Memory, a provider of flash-based memory storage solutions, priced in the middle of the range and declined 22% on its first day.

Despite the Federal Reserve’s decision not to scale back its bond-buying program, the recent government shutdown and political brinkmanship over raising the country’s debt limit that ended with only a short-term solution suggests there may be some market turbulence on the horizon. The currently robust pipeline, however, points to an active fourth quarter with a number of eagerly anticipated IPOs.

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